Figure 1. Capacity market prices jumped almost nine-fold in most of the PJM region from 2024/2025 to 2025/2026 and by another 22% for 2026/2027
A tightening market for electric generation capacity across the PJM region (which spans all or parts of 13 mid-Atlantic and Midwestern states, plus the District of Columbia) is driving up electric rates for consumers.
This tight market is driven in large part by data centers, highlighting another way in which ratepayers are footing the bill for electrical infrastructure demanded by these facilities. (A May IEEFA report highlighted how ratepayers across PJM are subsidizing the cost of new transmission lines needed to serve northern Virginia data centers).
Rates are going up because of sharp price increases in the PJM capacity market. The capacity market is a forward auction that seeks to ensure there is enough power plant capacity on the system to meet projected load. The auction results in a price that generators receive for their capacity during a year (if a particular sub-region, or zone, of PJM is constrained by transmission limitations in its ability to import power, the price may be higher in that zone).
In recent auctions, capacity prices cleared as follows:
The 2026/2027 price would have been even higher if PJM had not imposed a price cap for the auction.
The PJM capacity auction is supposed to be a three-year ahead forward process. Due to rule changes and delays in PJM, that has not been the case in recent years. Prices for the 2024/2025 delivery year were determined in an auction held in December 2022. The auction for 2025/2026 was held in July 2024. And the 2026/2027 auction was just held in July 2025.
Between December 2022 and July 2024, the artificial intelligence (AI) bubble took off driving a dramatic increase in forecasted energy consumption in PJM. The 2022 forecast showed an increase in load of about 5,700 megawatts (MW) by 2037 in PJM’s Dominion Zone, which includes northern Virginia’s “data center alley.” In contrast, the 2025 forecast showed more than 20,000 MW of growth from data centers alone in the Dominion Zone by 2037.
Data centers in PJM have been largely concentrated in Virginia, the largest data center market in the world, where Amazon has the largest footprint. But they are increasingly spreading to other zones, particularly in Ohio and Maryland.
As IEEFA has noted, there are strong reasons to believe that PJM’s 20-year forecasts of data center growth are inflated. But in the short term, markets are responding as though these forecasts are going to materialize.
The near-term tightening of the capacity market was enough to drive prices sharply higher in the 2025/2026 auction. Monitoring Analytics, a consulting firm that acts as an independent market monitor for PJM, recently estimated that data centers were responsible for 63% of the increase in prices in the 2025/2026 auction, which translates to $9.3 billion in costs that will be recovered from customers across PJM in higher electric rates.
In other words, ratepayers across PJM are paying $9.3 billion more in just one year than they would have without data centers’ electricity demand.
In Washington D.C., for example, Pepco residential customers saw their bills go up by an average of $21/month starting in June 2025. The D.C. Office of Consumers’ Counsel, the government agency that represents residential ratepayers before the district’s Public Service Commission, estimates that $10/month, or about half of this increase, is due to the spike in capacity market prices.
The rate increases that customers are seeing vary across PJM, because capacity auction clearing prices vary from zone to zone in PJM. Capacity market prices are estimated to increase the average residential bill by $18/month in western Maryland and by about $16/month in Ohio. Starting in June 2026, ratepayers across the region will collectively be paying an additional $1.4 billion in capacity market costs, again driven largely by data center demand.
This recent development also highlights that power supply may increasingly operate as a real limiting constraint on the tech industry’s plans for data center growth. A study commissioned by the Virginia legislature found that if all tech industry forecasts of data center demand for the next two decades in Virginia were actually to be met, it would require an unprecedented level of construction of new power plants in Virginia, as well as doubling imports from the rest of PJM, which would in turn require new generation and new transmission to bring power to northern Virginia.
Projected data center growth will run into real constraints—in terms of the pace at which the utility industry can build infrastructure (typically several years longer than the time required to build a data center), Virginia and other states’ climate and clean energy goals, and the willingness of other ratepayers in PJM to continue subsidizing infrastructure for data centers.
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